To buy, or not to buy, a home

In Albany County, median household income grew by 19 percent from 1999 to 2006, according to the census. But the county’s median sales price for a single-family home jumped 76 percent.

In Saratoga County, household income rose 16 percent — and the median home priced spiked 98 percent, according to Realtors’ statistics.

Hindsight being what it is, then, why should it have surprised anyone that the housing market — and its rapidly inflating bubble — ultimately faltered? Given that prices so rapidly outpaced income, shouldn’t it have been obvious the center wouldn’t hold?

Apparently not.

“Everybody got caught up in the excitement,” said Paul Semanek, president of the Greater Capital Association of Realtors, a trade group.

Now, four years after the bubble began losing air, the challenge is to determine where the market is headed. Is the worst behind us? Or is the bubble continuing to deflate?

Many potential buyers, locally and nationally, seem convinced of the latter. The Capital Region’s number of closed home sales in April was 38 percent below last year’s pace and even below the level of 2009, at the depth of the recession.

Brokers say attitudes among potential buyers have changed. Once the desire to own a home burned red-hot at any price, in part because housing was seen as a way to quickly build a nest egg.

Now, the mood toward housing seems almost indifferent, agents say, despite low interest rates and dramatically improved conditions for buyers. “They’re having a hard time getting worked up about it,” said Eric Dahl, managing broker at nonprofit Community Realty in Albany.

In 2005, buyers overlooked a home’s flaws, perhaps because rising values made it easy to cash out on equity and make upgrades. Now they demand a nearly impossible level of perfection, said Semanek.

Oh, how things have changed.

Prices, of course, also have changed. In much of the country, including the many areas where the rise greatly outpaced that of the Capital Region, pre-recession values are all but erased. The Standard & Poor’s/Case-Shiller index of 20 large cities estimates a 33 percent value decline to levels not seen since 2002 or 2003.

By all accounts, the fall hasn’t been nearly as steep in the Capital Region.

Realtors here estimate that prices are down by as much as 20 percent for homes at the high end of the market — priced above $500,000. They say values for more moderately priced houses are probably down by five to ten percent, depending on location.

The Brookings Institution, meanwhile, recently found that the Capital Region’s median sales price — $184,000 in the first quarter of 2011, according to the National Association of Realtors — is down by about eight percent from its peak.

Median household income in the region, meanwhile, is rising slightly as home values slide, increasing from $53,202 in 2006 to $57,677 in 2009, according to federal estimates.

Some renters are taking advantage of their increased purchasing power.

“I’m putting a lot of money into rent right now, almost $1,000 per month,” said Maureen Bracken, who is looking to buy with her boyfriend. “I can get a house for about that payment.”

Focusing on lower-tax suburbs, the pair from Albany is eyeing homes priced at about $150,000. Before the real estate downturn, they probably would have struggled to find a livable home at that price.

Then, many home buyers found themselves priced out of the market. Others, determined to buy, turned to subprime mortgages that ultimately proved dangerous — to their own wallets and the overall economy.

Bracken, 26, concedes the possibility of further price drops is worrisome. “But how much lower could they go?” she asked. “What goes down always comes up again, right?”

Many economists agree. Many buyers aren’t so sure.

“People are concerned that home prices may fall further,” said Greg McBride, a senior analyst with Bankrate, the personal finance website.

McBride sees irony in how “people would walk over hot coals to buy a house worth five times their income in 2005,” but now find today’s more reasonably priced homes too chancy. If anything, he notes, the risk has diminished.

That’s especially true, he and other analysts say, for buyers who see their purchase as a home, rather than an investment, and intend to stay put long-term.

Still, many potential buyers are waiting, likely influenced by frequent reports showing how much the housing crash continues to impact the economy.

The Federal Reserve, for example, said last week that average home equity has plunged from more than 61 percent at the start of 2001 to 38 percent at the start of this year. The nest egg shrank.

Likewise, a report from real-estate data firm CoreLogic Inc. found that almost 40 percent of homeowners who took out second mortgages now owe more than their homes are worth, according to The Wall Street Journal.

Then, there’s the continued shaky state of the overall economy. Nationally, the unemployment rate remains stubbornly high. In the Capital Region, state layoffs loom.

“If you’re a state employee, are you going to be thinking about buying a house?” Semanek asked. “Housing isn’t in a vacuum. It’s affected by everything.”

So perhaps it shouldn’t be surprising that renters like Jennifer O’Connor would rather be patient.

O’Connor, 29, is newly married, and she and her husband have good jobs. They could afford a home. And to many, the Albany couple are the perfect buyers.

But O’Connor, perhaps illustrating the post-crash attitude toward ownership, can think of reasons not to purchase, including taxes and the cost of maintenance. And what if they want to move in a couple of years, but can’t unload their home in a market that still slumbers?

37 Responses

I agree with O’Connor. Myself and my fiance aren’t in a place to buy just yet, but we have considered the idea; but like O’Connor, we look at the other costs, i.e. the small fixes or remodels, the regular upkeep, the taxes, I can have a beautiful apartment with a simple phone call to the maintenance man and it’s fixed rather than possibly thousands out of my own pocket that in this market, I just don’t have. We used to want a house because we wanted to be putting the money into something that was ours not owned by someone else, but recently, it’s easier to just “pay to stay”.

J, what gives? Why do you comment negatively on owning a home on every single blog post? Did you lose a home in a divorce? Can you not afford one and somehow this makes you feel better?
I don’t get it at all. Your level of determination is too high to not have some skin in the game (whether actual or emotional). Seek some help if you need it man. It’s not your fault. It’s not your fault.

That’s true, J. But you gotta have someplace to live and many people prefer living under a roof they will ultimately own outright one day. If you look at purchasing a primary residence as solely an investment, it may not be the best monetary investment in the world, but to a certain extent people are also invested emotionally in their homes. Many people derive a great deal of enjoyment from owning their own home and some of the monetary considerations may be secondary for them. Also, the cost of ownership for each person varies. Some people don’t have mortgages or perhaps they receive exemptions on their land taxes. Or maybe they rent out part of their home and derive income from that. There are many factors that could seriously reduce the costs associated with owning a home.

@6—-zack, exactly right. Equity is not profit. I think you’re starting to see more and more people realizing this right now and that’s why you see so many houses back up for sale after less than 5 years of buying it.
And then there are those trying to sell at astronomical amounts higher than they just bought for 3 years ago.

I own three homes, and I don’t regret buying any of them. I also intend to hold them for the long run, so I am not thinking that any of them is a cash cow. I do think the rental income will provide future retirement income for me. The ironic thing is that people who decide not to buy will not use alternative investments to save the money that would have been paid in a mortgage to build equity in their home. Therefore, they rent for 10 years and still have no nest egg to speak of. I do think that there were a lot of people owning in the boom that had no business owning because they were only in it for the money and didn’t really take care of their home.

i have to say that growing up yrs ago owning a home,having a good job, and starting a family were the 3 most important things that as kids we were taught by our parents.Seems now in the past 5-8 yrs people have lost either their jobs or there homes or in some case both. People struggle to do all the above, the value of life we now try and teach our kids is to just find a job. Kids today act as if its no big deal but wait till they get to be our age what will they have ?? A job,maybe, a house, unlikely, soooo then what ???

Suze Ormon has a great little Rent v. Buy article on the internet that I share with everyone when they ask me about buying a house.

I bought a house when I was young and just starting out on my career because it was ‘the right thing to do.’ Bought a house within my means in a great neighborhood. And got completely buried during the Jurczynski (sp?) era in Schenectady when my taxes doubled in about 5 years time. I had no money to fix up my house and could barely maintain it – every penny went to paying the mortgage and taxes. After I sold it, it still took me 3 years to get out from under it.

I finally own a house again now, but I bought in Colonie where the taxes are reasonable because I’ve learned that they’re only going to go up.

Before you buy, do your homework (I thought I did) and talk to people about the pros and cons of owning a home. Yes, it’s fun to paint and remodel and decorate your own house, but boy, it gets old quick! 😉

I am currently in the situation of deciding whether or not to buy or rent. I recently heard the statistic that the city I am looking to relocate to is ranked #4 for worst city to rent in because it would only cost $60 more a month to own. So while I can definitely understand and identify with the hesitations people have about buying vs. renting; I really am having a hard time fathoming renting when realistically I can own something for a comparable price. Just something to think about I guess…

letsgetreal – I belive I heard that about half of all the homes in the US do not have a mortgage. Not everyone went crazy during the housing boom. For example, my husband and I own two homes – one a rental duplex (the first home we ever bought) and our primary residence. We paid off the mortgage on our duplex years ago and have a small remaining mortgage on our primary residence that will be paid off in less than 5 years. My sister owns her home outright and so does my mother-in-law. When I was a kid, my parents didn’t have a mortgage, either. Not bragging – I mean these are all very modest homes I’m referring to, but there are lots of people who make it a priority to pay off their mortgages and didn’t use their home equity as an ATM machine during the boom and didn’t buy homes they could not afford.

Owning your home as opposed to renting is a proven, financially sound way to build your wealth in the long term. If you’re in it for short term gains, look somewhere else. But understand that by renting a house or apartment for the next 30 years, you’re just paying someone else’s mortgage when you could be paying your own. Real Estate typically doubles in value every 10 years, it has for the last 100 in this country and as soon as unemployment #’s return to normal, Real estate values will start going up again. If you can buy now and plan on staying in this area for a while, you should really consider it.

scenario A:
Person pays x dollars a month on rent for 30 years and walks away with nothing at the end.
Invests the money saved from not paying the down payment, taxes, mortgage interest, gas for mowers, new roof, new driveway, etc.

scenario B:
Person finances house. (Shells out 15-20% down payment)
Lives in it for 30 years (maybe)
Pays mortgage every month (gains equity over time)
Pays taxes every month (no return on investment)
Pays interest on loan (only gets a % back)
Pays for maintenance and repairs (no return on investment)
Walks away at end of 30 years with ONLY the equity

@13—Even for those houses paid in full that no longer have a mortgage payment, I’ll bet a dime to donuts that a tax bill still shows up in their mailboxes every year. So nothing is ever owned outright. They still pay to live there.

J–you do realize that a renter pays for taxes, roof replacement, gas for mowers, etc, don’t you? He just pays the landlord. You also have not taken into consideration the tax deductibility of real property taxes and mortgage interest for owners.

No, if you will show me the availablity of rental homes for a family of 3 to 5 and what the rents are we can have a logical conversation.

yes, the renter does pay for those things, but they aren’t above and beyond the monthly rent. When a homeowner needs a new roof they shell out 15 grand. When a renter needs one the landlord pays for it. Does their rent probably go up the next year? yes, but not by the amount the new roof cost.

Obviously, you are not a landlord, because a landlord can only charge what the market bears for rent. If you recently purchased a building, you are not likely to cover all of your expenses immediately and/or make a profit. Often, rental buildings are purchased with the idea that the investment and upgrades would eventually pay for rent, repairs, and return a profit.

Seriously? Of course they do. But most landlords also rent to multiple tenants and spread the costs of repairs over those tenants. And you can’t tell me that even in the case of a single tenant a landlord would immediately raise the rent by the amount of said repair.

J – If we assume that at the end of the 30 years the renter moves out and the owner sells, leaving both without a roof over their heads, then it depends on how much money the owner can get for that equity. If it’s more than the money they “lost” over the years, the owner wins. If not, I suppose the renter wins.

But that’s assuming money is the only criterion. The debate really hinges on any number of intangibles. Boiled down to its most essential bullet point, some people find they gain more “freedom” from renting, while others find they gain more “freedom” from owning. That’s why there will never be one answer, no matter how badly people on both sides want their answer to be the “correct” one.

elmer – Be fair. J did say that one house was fairly priced once. He may have even said it about two houses. 😀

Guys, J isn’t talking about a building with a bunch of 1 and 2 BR’s. His thesis is that it makes more sense to rent for 30 years than to buy a house (@16). So we need to look at the cost of renting a house for a family.

@ Linda, I agree that a landlord can only charge what the market will bear. But if you buy a rental property and “the market” won’t pay you rents to allow for necessary repairs/replacements you are a dope.

Not to sound shallow, but owning real property is a hallmark of success in America. I have never known a successful, professional adult who didn’t own his/her own apartment, condo, house etc. and that includes years living in large cities.

Margaret Thatcher once said, “Any man who rides a bus to work after the age of 26 can count himself a failure in life.” I think that in America it is generally accepted that any man with a family who rents a house after the age of 30 can count himself a failure in life.

@J I’m not necessarily saying I agree with the sentiment, although I surprisingly began to feel anxious as my friends started buying houses, what I’m saying is that I believe among the majority of people in America, homeownership has become a benchmark for success. Even the most evolved among us have moments of anxiety when we compare ourselves to our peers. And if the majority of our peers have accomplished something we have not, in this case it’s a material possession, but in other cases it could be having a family or attaining an advanced degree, we feel less than, or unsuccessful. Again, don’t shoot the messenger because you don’t like the message. But if you disagree about homeownership and perceptions of success generally rather than individually, than I’m willing to listen to your argument.